Asian markets drop as upbeat Fed gives way to Delta, China

HONG KONG: Traders took a step back in Asian trade Tuesday as they struggled to extend Wall Street's rally, with sentiment jolted by data suggesting China's economic recovery was slowed down by an outbreak of the fast-spreading Delta Covid variant.

The positive energy stoked by a pledge from Federal Reserve boss Jerome Powell to be cautious in withdrawing the bank's vast financial support appeared to have dissipated, replaced by fresh concerns over Beijing's crackdown on private enterprises and the ever-present spectre of the coronavirus.

Further records for the S&P 500 and Nasdaq in New York were not enough to spur buying Tuesday after China released figures showing activity in the services industry contracted last month for the first time since February 2020.

Authorities imposed strict travel restrictions on swathes of the country this month to contain its worst outbreak of Covid since the beginning of the pandemic last year with dozens of cities affected and tens of millions of people subject to containment measures.

The moves saw flights cancelled and tourist spots closed while events were called off in a bid to nip the flare-up in the bud.

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The "data again reflected the outsized and asymmetric shock on the service sector from Covid-related restrictions", Liu Peiqian, at Natwest Markets said.

And while new case figures have been brought under control again, Liu warned any such spike in future will again likely hit the services sector.

The issue came as several other countries -- including Australia and New Zealand -- are forced to impose tough measures to battle a surge in infections while also struggling with their vaccine rollouts.

China tech takes fresh hit

Analysts said US Treasury yields remained subdued -- indicating higher demand for the safe-haven assets -- owing to lingering concerns over the impact of Delta on the recovery.

"The bond market is getting a little nervous about the economic outlook," Priya Misra, at TD Securities, told Bloomberg Television.

But she added: "I actually think the economy is fundamentally strong.

By year end, if the economy holds up, which we forecast it will, that's when we expect rates -- especially in the long end -- to start to edge higher."

Tokyo, Shanghai, Singapore, Seoul, Taipei, Manila and Jakarta were all in negative territory. Sydney and Wellington edged up.

Hong Kong was among the worst-hit, dropping more than one percent as tech firms came under pressure yet again after China announced rules allowing under-18s to only play their computer games for three hours a week, saying it wanted to curb what it called an addiction.

Companies are prohibited from offering gaming services outside the stipulated hours, although the statement did not make it clear how rule-breakers would be punished.

The announcement is the latest blow for the tech industry and gaming, which has vowed to rein in firms it considers to have become too powerful.

Gaming giant Tencent, which has been battered for months by Beijing's clampdown, lost more than three percent.

Investors are now gearing up for the release of US employment data Friday, which could have a bearing on when the Fed begins tightening monetary policy.

The reading comes after around 1.8 million new jobs were created through July and August.

"Another stellar print would firm up expectations of a near-term taper announcement as early as the September (policy) meeting, while a weaker print would see such an announcement pushed back to November or December," said National Australia Bank's Tapas Strickland.

Key figures around 0230 GMT

Tokyo - Nikkei 225: DOWN 0.2 percent at 27,735.34 (break)

Hong Kong - Hang Seng Index: DOWN 1.3 percent at 25,200.36

Shanghai - Composite: DOWN 0.5 percent at 3,510.49

Dollar/yen: DOWN at 109.86 yen from 109.91 yen at 2130 GMT

Pound/dollar: UP at $1.3763 from $1.3756

Euro/dollar: UP at $1.1804 from $1.1796

Euro/pound: UP at 85.77 pence from 85.73 pence

West Texas Intermediate: DOWN 0.5 percent at $68.85 per barrel

Brent North Sea crude: DOWN 0.6 percent at $73.00 per barrel

New York - Dow: DOWN 0.2 percent at 35,399.84 (close)

London - FTSE 100: Closed for a holiday